Market exposure is a key concept in quantitative finance. This is classically measured by estimating a beta coefficient in a linear equation where beta (exposure) expresses the returns of the market. Returns with low exposure to the market are desired, as they are not affected by downturns. This exposure modeling can be generalized to multiple factors and the exposures to factors are used to determine if a strategy or asset is protected enough from changes in certain risk factors, and to purchase hedges that cancel out this risk exposure.
Partner: Delaney Granizo-Mackenzie